Global economy gives us a limited window to pull off a manufacturing revolution

The good news is that today's global economic environment provides India with a special window of opportunity to commence a manufacturing revolution. Image: EPA.

A decade ago it looked like the Indian economy could leapfrog manufacturing by taking the services expressway. But an escalating employment challenge has made it amply clear this was but a pipe dream.

PM Narendra Modi got it dead right in his Independence Day speech, that providing jobs to India's youth demands promoting its manufacturing sector. Come, 'Make in India', he invited the world. Now Modi's government must shore up his rousing call to action with the necessary reforms.

The good news is that today's global economic environment provides India with a special window of opportunity to commence a manufacturing revolution. China's rising wages are eroding its cost advantage. India can really benefit from this, if it becomes a better place to do business.

On the other extreme, the US is seeing a jobless manufacturing renaissance, with a lot of innovation in 3D printing and robotics. In a few decades, automation will make labour-intensive manufacturing obsolete across the world. The next 20 years are India's window to move jobs from agriculture to manufacturing, and simultaneously skill up its population for a futuristic landscape.

Modi's Independence Day speech also underlined the necessity of skill development at a rapid pace. But diagnosis and treatment are two distinct things. It's not enough for a PM to recognise that India won't really reap its much-awaited demographic dividend if its youth leave school ill-prepared for a globalised work environment.

His government must also cut back the red tape that has created such a demand-supply mismatch in skilling. Instead, the recent FYUP fracas shows an HRD ministry still hell-bent on restraining educational institutions' autonomy. This is the 'archaic' system Modi pilloried at the Red Fort.

It's not the education sector alone that's blocked up. Labour laws discourage firms from breaking the threshold of 100 workers — who remain stuck in the less productive informal economy.

Land acquisition and environmental clearance logjams discourage new investments. The GST reform is still gathering dust even though it promises to reduce transaction costs dramatically. But these are not insurmountable challenges.

We have the examples of China, Korea and Taiwan to clearly show that governments can indeed help generate a massive number of industrial jobs if they pursue this goal with dogged resolve. India's PM has the political capital to push towards this goal. Just do it.